Vertex Pharmaceuticals VRTX · USD

Segment InformationSegment reporting is prepared on the same basis that our chief executive officer, who is our chief operating decision maker (“CODM”), manages the business, makes operating decisions and assesses performance. We operate in one segment, pharmaceuticals. We have selected net income (loss) as our reported measure of segment profit or loss because it is regularly provided to our CODM, allows our CODM to allocate resources because it encapsulates the results of our processes that generate revenues and expenses, and is important to the users of our financial statements. Enterprise-wide disclosures about revenues, significant customers, significant segment expenses, and property and equipment, net by location are presented below.Revenues by Product“Product revenues, net” consisted of the following:Year ended December 31,202520242023(in millions)TRIKAFTA/KAFTRIO$10,312.7$10,238.6$8,944.7ALYFTREK837.8——Other product revenues820.1781.5924.5Total product revenues, net$11,970.6$11,020.1$9,869.2In 2025, “Other product revenues” included $115.8 million from CASGEVY and $59.6 million from JOURNAVX. In 2024, “Other product revenues” included CASGEVY product revenues of $10.0 million and there were no revenues from JOURNAVX. The remaining “Other product revenues” are related to KALYDECO, ORKAMBI, and SYMDEKO/SYMKEVI, our other CF products.Revenues by Geographic Location“Product revenues, net” are allocated based on the location of the customer. “Other revenues” are allocated based on the location of the Vertex entity associated with such revenues. Our “Total revenues” consisted of the following:Year ended December 31,202520242023(in millions)United States$7,548.6$6,684.9$6,040.4Outside of the United StatesEurope3,460.33,453.93,109.0Other992.4881.3719.8Total revenues outside of the United States4,452.74,335.23,828.8Total revenues$12,001.3$11,020.1$9,869.2In 2025, our “Other revenues” of $30.7 million were attributed to the U.S. We did not have any “Other revenues” in 2024 or 2023.Significant CustomersGross product revenues and net accounts receivable from each of our customers who individually accounted for 10% or more of total gross product revenues and/or 10% or more of total accounts receivable consisted of the following:Percentage of Total Gross Product RevenuesPercentage of Accounts ReceivableYear Ended December 31,As of December 31,20252024202320252024McKesson Corporation22%26%26%19%17%Accredo Health Group, Inc.

Commitments and Contingencies2022 Credit FacilityIn July 2022, Vertex and certain of its subsidiaries entered into a $500.0 million unsecured revolving facility (the “Credit Agreement”) with Bank of America, N.A., as administrative agent and the lenders referred to therein (the “Lenders”), which matures on July 1, 2027. The Credit Agreement was not drawn upon at closing and we have not drawn upon it to date. Amounts drawn pursuant to the Credit Agreement, if any, will be used for general corporate purposes. Subject to satisfaction of certain conditions, we may request that the borrowing capacity for the Credit Agreement be increased by an additional $500.0 million. Additionally, the Credit Agreement provides a sublimit of $100.0 million for letters of credit.Any amounts borrowed under the Credit Agreement will bear interest, at our option, at either a base rate or a Secured Overnight Financing Rate (“SOFR”), in each case plus an applicable margin. Under the Credit Agreement, the applicable margins on base rate loans range from 0.000% to 0.500% and the applicable margins on SOFR loans range from 1.000% to 1.500%, in each case based on our consolidated leverage ratio (the ratio of our total consolidated funded indebtedness to our consolidated EBITDA for the most recently completed four fiscal quarter period). Any amounts borrowed pursuant to the Credit Agreement are guaranteed by certain of our existing and future domestic subsidiaries, subject to certain exceptions.The Credit Agreement contains customary representations and warranties and affirmative and negative covenants, including a financial covenant to maintain subject to certain limited exceptions, a consolidated leverage ratio of 3.50 to 1.00, subject to an increase to 4.00 to 1.00 following a material acquisition. As of December 31, 2025, we were in compliance with the covenants described above. The Credit Agreement also contains customary events of default. In the case of a continuing event of default, the administrative agent would be entitled to exercise various remedies, including the acceleration of amounts due under outstanding loans.Direct costs related to the Credit Agreement are recorded over its term and are not material to our financial statements.

Income Taxes We are subject to U.S. federal, state, and foreign income taxes. The components of income before provision for income taxes consisted of the following:Year ended December 31,202520242023(in millions)United States$2,821.2$(1,369.7)$3,089.1Foreign1,822.01,618.21,290.7Income before provision for income taxes$4,643.2$248.5$4,379.8The components of our provision for income taxes consisted of the following:Year ended December 31,202520242023(in millions)Current taxes:Federal$679.1$704.9$900.4State35.9118.246.2Foreign485.8309.8350.1Total current taxes1,200.81,132.91,296.7Deferred taxes:Federal(527.0)(438.7)(569.9)State(22.1)(48.7)(21.9)Foreign38.3138.655.3Total deferred taxes(510.8)(348.8)(536.5)Provision for income taxes$690.0$784.1$760.2Unremitted EarningsAs of December 31, 2025, we do not consider a portion of the earnings of our foreign subsidiaries to be indefinitely reinvested. Upon repatriation of the non-indefinitely invested earnings in the form of distributions or otherwise, we could be subject to immaterial U.S. federal withholding taxes payable to various foreign countries and income taxes in certain states. There are no material deferred taxes recorded on the excess of financial statement reporting over the tax basis of our investments in our foreign subsidiaries. Any permanently reinvested basis differences could reverse if we sell our foreign subsidiaries or various other events occur, none of which were considered probable as of December 31, 2025. The tax liabilities described above would not be material to our consolidated financial statements.Effective Tax Rate ReconciliationA reconciliation of our provision for income taxes and our effective tax rate as compared to the U.S. federal statutory rate of 21% for the year ended December 31, 2025 was as follows:Year ended December 31, 2025AmountPercentage(in millions, except percentages)Income before provision for income taxes$4,643.2Federal statutory tax rate975.121.0%State and local income taxes, net of federal income tax effect (1)(1.9)—%Foreign tax effectsUnited Kingdom (“U.K.”)Statutory tax rate difference between U.K. and U.S.64.71.4%Other8.30.2%Other foreign jurisdictions10.50.2%Effect of cross-border tax lawsDeferred charges related to intra-entity transfers(61.5)(1.3)%Foreign-derived deduction eligible income(58.5)(1.3)%Subpart F income, net of credits(97.4)(2.1)%Other0.8—%Tax creditsResearch and development tax credits(154.4)(3.

Stock-based Compensation ExpenseWe recognize share-based payments to employees as compensation expense using the fair value method. The fair value of restricted stock units, including PSUs, is based on the intrinsic value on the date of grant. The fair value of shares purchased pursuant to the ESPP and stock options is calculated using the Black-Scholes option pricing model. Stock-based compensation expense, measured at the grant date based on the fair value of the award, is typically recognized ratably over the requisite service period.During the three years ended December 31, 2025, we recognized the following stock-based compensation expense:Year ended December 31,202520242023(in millions)Stock-based compensation expense by type of award:Restricted stock units (including PSUs)$672.1$689.1$563.7ESPP share issuances27.018.215.8Stock options1.21.84.0Stock-based compensation expense related to inventories(14.4)(10.6)(2.3)Total stock-based compensation expense included in “Total costs and expenses”$685.9$698.5$581.2Stock-based compensation expense by line item:Cost of sales$11.1$7.5$7.5Research and development expenses415.4425.8354.9Selling, general and administrative expenses259.4265.2218.8Total stock-based compensation expense included in “Total costs and expenses”685.9698.5581.2Income tax effect(128.6)(251.6)(167.5)Total stock-based compensation expense, net of tax$557.3$446.9$413.7We capitalize a portion of our stock-based compensation expense to inventories, all of which is attributable to employees who support the manufacturing of our products.The following table sets forth our unrecognized stock-based compensation expense as of December 31, 2025, by type of award and the weighted-average period we expect to recognize the expense:As of December 31, 2025Unrecognized ExpenseWeighted-average Recognition Period(in millions)(in years)Type of award:Restricted stock units (including PSUs)$737.11.89ESPP share issuances5.20.46Total unrecognized stock-based compensation expense$742.3Restricted Stock Units and Performance-based Restricted Stock UnitsWe award restricted stock units with service conditions, which are generally the vesting periods of the awards.Our PSUs granted to certain members of senior management are described in Note M, “Common Stock, Preferred Stock and Equity Plans.” The financial-based PSUs, with a one-year performance period, are expensed ratably over their three-year vesting period.

LeasesA summary of our most significant leases, including real estate and embedded leases with contract manufacturing organizations, is as follows:Corporate HeadquartersIn 2011, we entered into two lease agreements, pursuant to which we lease approximately 1.1 million square feet of office and laboratory space in two buildings in Boston, Massachusetts for a term of 15 years (our “Corporate Headquarters”). In August 2024, we amended the existing lease agreements to, among other terms, extend the lease termination dates from December 2028 to June 2044 (the “Amendments”). We have the option to extend the amended leases for up to two additional ten-year periods.The Amendments did not grant us any additional rights of use not contemplated in the existing lease agreements. As a result, we accounted for the Amendments as modifications that extended the terms of the existing leases and reassessed the classification of the leases as of their effective dates. We remeasured the lease liabilities using our incremental borrowing rate as of the effective date of the Amendments and classified the leases associated with our Corporate Headquarters as operating leases. As a result, we obtained right-of-use operating lease assets of $847.9 million in exchange for operating lease obligations of $1.0 billion and reduced our finance lease liabilities and property and equipment by $275.3 million and $107.5 million, respectively.Jeffrey Leiden Center for Biologics, Cell and Genetic Therapies Campus (“Leiden Campus”)In 2019, we entered into an agreement to lease approximately 269,000 square feet of office and laboratory space at our Leiden Campus near our corporate headquarters in Boston, Massachusetts for a term of 16 years (“Leiden I”), which is classified as an operating lease. Base rent payments commenced in 2021 and will continue through November 2036. We utilize the initial period as our lease term. We have an option to extend the lease term for up to two additional ten-year periods.In 2024, we entered into a lease agreement for a second building (“Leiden II”) at our Leiden Campus. The Leiden II lease, which commenced in 2025, includes approximately 348,000 square feet of office and laboratory space for a term of approximately 16 years. Upon lease commencement, we recorded a right-of-use asset and corresponding lease liability, net of tenant allowances, of $296.

Risk Management and StrategyWe recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to maintain the security, confidentiality, integrity, and availability of our business systems and confidential information, including personal information and intellectual property. Our cybersecurity program includes systems and processes for assessing, identifying and managing material risks from cybersecurity threats and include maintenance and monitoring of information security policies aligned with global regulatory controls and aligned with National Institute of Standards and Technology Cybersecurity Framework and System and Organization Controls 2. The program includes user and employee awareness of cyber policies and practices; information systems configuration management; third-party risk management systems; identity and information asset protection; infrastructure security systems; and cyber threat operations with continuous monitoring and threat hunting. This program also includes processes to oversee and identify material risks from cybersecurity threats associated with our use of third-party service providers. We engage a range of third-party experts in connection with various development, implementation, and maintenance activities related to our cybersecurity program, including audit and compliance, threat hunting, monitoring, and end-user support.Our cybersecurity program is integrated into our overall risk management systems, including our annual enterprise risk management program, internal audit program, business continuity and crisis management programs, third-party risk management program, insurance risk management program, and employee compliance programs. As part of our overall risk management program, we maintain a global insurance portfolio with comprehensive cyber coverage. Our Chief Information Security Officer (“CISO”) and the Information Security function advises, consults with, or provides input to each of these programs to ensure that material risks from cybersecurity threats are appropriately assessed, identified, and managed. As of the date of this report, there have been no cybersecurity threats that have materially affected or are reasonably likely to materially affect our business, operations, or financial condition. Similar to other companies, we have experienced cybersecurity incidents, including temporary service interruptions of third-party suppliers.

HedgingForeign currency forward contracts - Designated as hedging instrumentsWe maintain a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of our forecasted product revenues denominated in certain foreign currencies. The program includes foreign currency forward contracts that are designated as cash flow hedges under U.S. GAAP having contractual durations from one to 36 months. We recognize realized gains and losses for the effective portion of such contracts in “Product revenues, net” in our consolidated statements of income (loss) in the same period that we recognize the product revenues that were impacted by the hedged foreign exchange rate changes. We formally document the relationship between foreign currency forward contracts (hedging instruments) and forecasted product revenues (hedged items), as well as our risk management objective and strategy for undertaking various hedging activities, which includes matching all foreign currency forward contracts that are designated as cash flow hedges to forecasted transactions. Using regression analysis, we assess, both at the hedge’s inception and on an ongoing basis, whether the foreign currency forward contracts are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis. As of December 31, 2025, all hedges were determined to be highly effective.We consider the impact of our counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of December 31, 2025 and December 31, 2024, credit risk did not change the fair value of our foreign currency forward contracts.The following table summarizes the notional amount in U.S. dollars of our outstanding foreign currency forward contracts designated as cash flow hedges under U.S. GAAP:As of December 31,20252024Foreign Currency(in millions)Euro$4,677.9$1,977.4Canadian dollar516.1322.0British pound sterling492.6301.7Australian dollar267.5179.2Swiss franc126.079.7Total foreign currency forward contracts$6,080.1$2,860.0Foreign currency forward contracts - Not designated as hedging instrumentsWe enter into foreign currency forward contracts, typically with contractual maturities of approximately one month, which are designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities, including intercompany balances. These contracts are not designated as hedging instruments under U.S. GAAP.

Earnings Per ShareThe following table sets forth the computation of basic and diluted net income (loss) per common share for the periods ended:Year ended December 31,202520242023(in millions, except per share amounts)Net income (loss)$3,953.2$(535.6)$3,619.6Basic weighted-average common shares outstanding255.7257.9257.7Effect of potentially dilutive securities:Restricted stock units (including PSUs)1.4—1.6Stock options0.9—1.2Diluted weighted-average common shares outstanding258.0257.9260.5Basic net income (loss) per common share$15.46$(2.08)$14.05Diluted net income (loss) per common share$15.32$(2.08)$13.89During the three years ended December 31, 2025, the number of anti-dilutive securities that were excluded from the computation of our diluted net income (loss) per common share were as follows:Year ended December 31,202520242023(in millions)Unvested restricted stock units (including PSUs)0.20.80.1Stock options—0.